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Assessing the Safety and Efficacy of the Fda: The Case of the Prescription Drug User Fee Acts

42 Pages Posted: 19 Jan 2006  

Tomas Philipson

University of Chicago; National Bureau of Economic Research (NBER)

Ernst R. Berndt

Massachusetts Institute of Technology (MIT) - Sloan School of Management; National Bureau of Economic Research (NBER)

Adrian Gottschalk

Biogen Idec, Inc.

Matthew W. Strobeck

affiliation not provided to SSRN

Date Written: October 2005

Abstract

The US Food and drug Administration (FDA) is estimated to regulate markets accounting for about 20% of consumer spending in the US. This paper proposes a general methodology to evaluate FDA policies, in general, and the central speed-safety tradeoff it faces, in particular. We apply this methodology to estimate the welfare effects of a major piece of legislation affecting this tradeoff, the Prescription Drug User Fee Acts (PDUFA). We find that PDUFA raised the private surplus of producers, and thus innovative returns, by about $11 to $13 billion. Dependent on the market power assumed of producers while having patent protection, we find that PDUFA raised consumer welfare between $5 to$19 billion; thus the combined social surplus was raised between $18 to $31 billions. Converting these economic gains into equivalent health benefits, we find that the more rapid access of drugs on the market enabled by PDUFA saved the equivalent of 180 to 310 thousand life-years. Additionally, we estimate an upper bound on the adverse effects of PDUFA based on drugs submitted during PDUFA I/II and subsequently withdrawn for safety reasons, and find that an extreme upper bound of about 56 thousand life-years were lost. We discuss how our general methodology could be used to perform a quantitative and evidence-based evaluation of the desirability of other FDA policies in the future, particularly those affecting the speed-safety tradeoff.

Suggested Citation

Philipson, Tomas and Berndt, Ernst R. and Gottschalk, Adrian and Strobeck, Matthew W., Assessing the Safety and Efficacy of the Fda: The Case of the Prescription Drug User Fee Acts (October 2005). NBER Working Paper No. w11724. Available at SSRN: https://ssrn.com/abstract=838545

Tomas Philipson (Contact Author)

University of Chicago ( email )

Graduate School of Business
1101 East 58th Street
Chicago, 60637

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Ernst Berndt

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

Room E52-452
Cambridge, MA 02142
United States
617-253-2665 (Phone)
617-258-6055 (Fax)

Adrian Gottschalk

Biogen Idec, Inc.

14 Cambridge Center
Cambridge, MA 02142
United States

Matthew Strobeck

affiliation not provided to SSRN

No Address Available

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